Subdued inflation expected to give room for steady monetary policy
MONETARY AUTHORITIES can be expected to keep policy settings unchanged when they meet next week as inflation in April likely steadied on the back of stable food and energy prices, according to 13 economists polled by BusinessWorld.
The survey yielded an estimate median of 2.4% for the rise in prices of widely used goods last month, unchanged from the level seen in March and at the midpoint of the central bank’s own 1.9-2.8% range for April.
The government is scheduled to report April inflation data tomorrow.
Steady inflation, the economists added, gives room for the Monetary Board to hold interest rates steady in its May 14 meeting.
The Bangko Sentral ng Pilipinas (BSP) last March 26 kept monetary policy steady for the fourth time in a row in the face of a manageable inflation environment and buoyant domestic activity. Overnight borrowing and lending rates were kept at 4.0% and 6.0%, respectively; special deposit account rates were maintained at 2.50% and banks’ reserve requirement ratios were left unchanged as well.
March saw inflation slightly ease to 2.4% due to tempered food prices after a 2.5% uptick in February on the back of upward adjustments in transport and utility costs.
“BSP will retain its current stance given benign inflation pressures,” Bank of the Philippine Islands Associate Economist Nicholas Antonio T. Mapa said in an e-mail last week. “Inflation will remain benign for the first half of the year, remaining well within the [full-year] inflation target of 2- 4% given the still- depressed global oil price environment. Food prices, at least in the near term, appear to be well behaved, as long as rice prices remain in check.”
Bill Diviney, Barclays regional economist for emerging markets research, said via separate e-mail that inflation should “hold steady as continued falls in rice prices offsets ongoing firmness in core inflation”, which strips out energy and food prices that are prone to volatility.
Ildemarc C. Bautista, research head at Metropolitan Bank & Trust Co., said via e- mail that steadying of price upticks last month was “based on the mixed movements of food prices and lower oil prices relative to last year”.
“This gives the BSP room to keep rates steady for now, and possibly for the rest of the year,” Mr. Bautista said. “We now expect some downside bias, with inflation possibly setting below the 2% level around July and August then climbing back up to above 2% afterwards due to base effects.”
Australia and New Zealand Banking Group Ltd. economist Eugenia Fabon Victorino, in an e-mail, said “subdued” increase in food prices likely offset the rise in electricity rates and oil prices.
“We believe soft outlook in inflation will remain through 2015, giving the central bank enough room to stand pat on monetary policy settings through 2015. Growth is robust and liquidity conditions remain supportive of growth,” Ms. Victorino said. “We expect BSP to embark on further tightening in 2016 when inflation picks up in line with tightening in the US Fed funds rate.”
Institute for Development and Econometric Analysis Research Director Remrick E. Patagan said lower oil prices likely restrained the general rise in consumer prices, offsetting the rise in power costs due to “seasonally strong demand coupled with the shutdown of the Malampaya facility and recent increments in fuel prices.”
“Considering the favorable inflation outlook, strong domestic demand, and improving external economic conditions, there appears to be no compelling reason for the BSP to change monetary policy at the moment,” Mr. Patagan said via e-mail, adding: “We see inflation picking up towards the latter half of the year to average at around 2.4% for the whole of 2015.”